How do capital allowances work on cars bought for business in 2026?

Full answer

Capital allowances let a business deduct the cost of qualifying capital assets from taxable profits. Cars are treated specially: unlike most plant and machinery, they cannot use the Annual Investment Allowance (AIA) or full expensing. Instead, relief is given through writing-down allowances (WDAs), with the rate set by the car's CO2 emissions. The system favours low-emission vehicles. New and unused zero-emission cars (and certain electric vehicles) can qualify for a 100% first-year allowance, letting the business deduct the full cost in the year of purchase. Lower-emission cars typically go into the main rate pool and are written down at the main rate each year on a reducing-balance basis, while higher-emission cars go into the special rate pool and are written down more slowly. Because the exact CO2 thresholds and pool percentages can change between Finance Acts and are not on our rate card, confirm the current 2026/27 emission limits and WDA rates on gov.uk before claiming -- do not assume a figure. Who it affects: sole traders, partnerships, and companies buying cars used in the business. For self-employed owners using a car privately as well, the allowance is restricted to the business-use proportion. Note an important alternative: many sole traders instead use simplified mileage (AMAP-style flat rates) rather than claiming capital allowances and running costs -- you cannot do both for the same vehicle. The card rate for employee/business mileage reimbursement is 45p per mile for the first 10,000 business miles then 25p for cars and vans, 24p for motorcycles, and 20p for bicycles. For incorporated businesses, the deduction reduces taxable profit charged to Corporation Tax (19% up to GBP 50,000, 25% above GBP 250,000, with marginal relief between). Model the profit impact with a Corporation Tax or self-employed tax calculator, and verify emission bands on gov.uk.

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